Scrubber manufacturers Clean Marine and Frontline/Navig8-affiliated FMSI were this week poised to sign off on their previously announced merger.
Continuing under the Clean Marine brand, the new outfit’s shareholders and managers want to move beyond scrubbers, turning the alliance into a powerhouse provider of sustainable shipping solutions.
Clean Marine founder and chief executive Nils Hoy-Petersen and Navig8 group chairman Gary Brocklesby described the merger as a complementary marriage during TradeWinds’ recent visit to the FMSI scrubber factory on the Indonesian island of Batam.
Clean Marine is the veteran partner, having been in the business for more than 15 years.
FMSI is a start-up that was formed in 2017, when Brockelsby, his Navig8 Group co-principal Nicolas Busch and John Fredriksen’s Frontline teamed up with Feen Marine, a small scrubber manufacturer established by Bjornar Feen.
Earlier this year, they took full control of FMSI after Feen sold his stake.
Benefits of merger
Hoy-Petersen and Brocklesby spoke from the same page when they explained the benefits of the merger.
On one hand, Clean Marine has a solid reputation but no manufacturing facilities. It has instead outsourced production to Vietnam, Tunisia, China and Turkey.
On the other, FMSI has a 40,000 square metre, state-of-the-art scrubber factory on Batam that has the capacity to make about 500 scrubbers per year. The plan is for all new scrubber orders to be built at this facility.
The merger gives the entity’s customers a full portfolio of scrubber options. Where Clean Marine has focused on hybrid/closed-loop scrubber systems, FMSI has concentrated on open-loop systems.
Together, they now have a global presence. Clean Marine has been strong in the European markets, while FMSI has had a more diverse customer base.
Finally, they said Clean Marine has a strong after-sales service, something that would have taken FMSI more time to develop.
“FMSI has the yard, the capacity, a few large customers and an orderbook,” Brocklesby said. “Clean Marine has an established brand and an experienced executive management.”
Hoy-Petersen, who will lead the outfit, said: “Overall, this merger is a sound business approach. There are now a lot of manufacturers and a lot of room for consolidation.”
Clean Marine’s senior management will assume control of the commercial running of the company, although the two Navig8 partners claim they will not be entirely out of the picture.
“We won’t step back completely,” Brocklesby said. “Nick and I are fairly active in any business we are involved in, but the Clean Marine executive management will take away a large part of the burden.”
Prior to the merger, Frontline held a 30% stake in FMSI, while the Navig8-affiliated entity controlled by Brocklesby and Busch owned the rest.
Frontline has revealed that it will hold a 14.5% stake in the new Clean Marine. Brocklesby did not reveal what sort of shareholding the Navig8 entity will have, but it is safe to assume that it has been scaled back to about 35%, based on Frontline’s revised figure.
Resurgence in demand
The IMO 2020 sulphur cap deadline is less than two months away, yet demand for scrubbers over the past year has been fairly low, according to Hoy-Petersen.
FMSI’s manufacturing plant is working at only a fraction of its full capacity, with only one of four production lines in operation.
It is not a situation that worries Hoy-Petersen, who believes demand should increase significantly into 2020.
“There is a logic in the market,” he said. “A large number of scrubbers were contracted in 2018 by owners who wanted them fitted ahead of 2020.
“When that opportunity was lost because of production capacity at the time, people lost that incentive to put scrubbers onboard [their vessels].
“They went instead into a wait-and-see mode that has made for a flat market throughout 2019.”
A strong tanker market has seen owners delay fitting scrubbers to vessels, which has also reduced demand.
At the time of TradeWinds’ visit, the FMSI facility had eight completed scrubbers awaiting delivery after buyers had delayed their collection.
“Our hope is that this will change in 2020,” he said. “Our strategy is to position ourselves for the next wave of ordering that will come.”
Ramping up production at the Batam plant will be easy enough. The yard has 272 employees, most of whom are experienced shipyard workers.
Factory managers say they would need only to hire another 65 workers to open up all four production lines. The production lines can fabricate an FMSI-designed, open-loop scrubber from the first cut to completion within 11 days.
Clean Marine has also signed a framework agreement with Singapore-based PaxOcean Engineering for fixed-cost retrofitting of scrubbers at PaxOcean’s own Batam shipyard.
“It’s a convenient solution, especially given the over-demand for retrofitting in China,” Brocklesby said.
The PaxOcean yard, which is just down the road from FMSI, can complete a retrofit within 20 days.
Looking to the future, Hoy-Petersen sees Clean Marine using scrubbers as a stepping stone towards developing other clean maritime product lines.
He said the push for sustainable shipping, combined with ever-more stringent environmental regulations, should create opportunities for developing technologies to make the industry greener.
Navig8 keeps faith in scrubbers
Brocklesby remains confident that scrubbers are the best way forward for shipping on economic and sustainability grounds, despite criticism from anti-scrubber groups.
Navig8 was an early convert to the technology, Brocklesby said.
Prior to Navig8 entering the market, it undertook extensive research into the effectiveness of exhaust gas cleaning systems in controlling SOX and particulate emissions, and their impact on the environment.
The company is fitting scrubbers on board all of the vessels in which it has a controlling interest. A total of 28 vessels have been fitted with scrubbers to date, with two MR tankers to undergo retrofitting.
A decision for the vessels operated by Navig8 Chemicals lies with its partner, Oaktree Capital Management.